1.Reliable Gearing currently is all -equity-financed.It has 10,000 shares of equity outstanding, selling at $10 a share.The firm is considering a capital restructuring.The low-debt plan calls for a debt issue of $200,000 with the proceeds used to buy back stock.The high-debt plan would exchange $400,000 of debt for equity.The debt will pay an interest rate of 10%.EBIT is is $110,000.

a.What will be the debt/equity ratio (book value) for each case?

b.What would be the EPS in each case if the company pays no taxes?

c.What would the EPS in each case if the company pays 50% of taxes?

d.What plan would you recommend the company to implement?Assess all pros and cons